India moved Fast after US 50% tariff shock treatment.
After President Donald Trump’s 2025 shock announcement of 50% tariffs on Indian imports - this included a 25% punitive tariff on India’s Russian oil purchases – Indian politicians and bureaucrats are now cautiously reacting to Trump’s turnaround announcement that the US would impose a total of 18% tariff on Indian imports. The 25% punitive tariff was withdrawn, Trump said, because India had stopped its Russian purchases. India has not yet confirmed this.
The Indian bureaucracy, which can take years to finalize an agreement with a foreign country, acted swiftly after Trump’s 50% tariff announcement last year, and began picking up the threads of uncompleted agreements with other nations. It finalized free trade agreements with individual nations and trade blocs, including the European Union.
How the India-EU FTA Translates
The annual EU-India two-way goods and services trade exceeds Euro 180 billion, supporting some 800,000 jobs in the EU, while the EU also sustained employment in India’s export-oriented manufacturing and services sectors, which have particularly been hit by the US tariffs. India has, generally, maintained a healthy trade surplus with the EU which is seen as an important and diversified economic partner for the former.
Ursula von der Leyen, the President of the European Commission, who was in India with Antonio Costa, the President of the European Council, for the agreement’s formalization, called the FTA the “mother of all deals”, highlighting its unmatched parameters, market access depth, and the perfect economic weight of both sides.
India will reduce tariffs on 96.6% of EU imports while the EU will reduce duties on 99.5% of Indian goods.
India’s labor-intensive export sector stands to benefit immensely, with zero-duty access for textiles, apparel, leather, footwear, gems and jewelry; agricultural and processed food exports will also benefit.
European industries, on the other hand, will benefit from increased access to the world’s fastest-growing market. European carmakers, for instance, welcomed India’s tariff reduction from 110% to 10% over five decades, fixing an annual quota of 250,000 EU vehicles with reduced tariff.
Trade experts believe that the gigantic footprint of Japanese brands such as Suzuki, Hyundai, etc., which dominate the Indian market with a combined 50% market share, will limit the impact of the preferential tariffs on European car imports. India’s tariff reductions on imported cars will need some time to benefit European carmakers.
India Turns to EU?
Although the US administration’s reduction of tariffs from 50% to 18% would give some relief to Indian exporters, Dutch bank ING sees Indian exporters will turn away from the US to the EU, since India’s goods exported to both the EU and the US are similar.
The EU-India deal, which had been languishing in the past 20 years after the slow pace of negotiations, seemed to have received a strong impetus to move forward, with some experts saying that Trump’s tariff jolts accelerated the pace towards finalization of the EU-India deal.
The services commitments will give EU companies access to India’s financial and maritime services markets, among others, while India will get access to 144 services subsectors, including information technology and professional services, as well as improved access for its professionals to the EU.
While India’s Commerce and Industry Minister Piyush Goyal envisaged the agreement to come into force later this year, experts point out that the deal still needs to be ratified by EU member states and the European Parliament. That could go much beyond this year.
India-US Agreement — Who Blinked First?
The Trump administration, which watched India’s moves as it finalized trade agreements with the UK, Oman, and the EFTA region (Switzerland, Norway, Iceland and Liechtenstein) in 2025, had hoped that India would acquiesce in US demands, and finalize the deal. A year had already passed as the chill set in bilateral relations following Trump’s 50% tariff imposition. Some Indian experts believe that the presence of EU Council President Costa and EU Commission President von der Leyen as state guests at India’s high-profiled Republic Day parade on January 26 followed by the formal announcement of the EU-India agreement the next day, may have moved Washington.
The US administration, already facing criticism from Democrats and several think tanks for shabbily treating a reliable and trusted strategic partner, besides losing a huge market, showed some flexibility after the EU-India agreement.
The US would not only do away with the 25% punitive tariffs but also reduce the reciprocal tariffs from 25% to 18%. India, according to Trump, would stop buying Russian oil and, instead, buy oil from the US and Venezuela. India would also enforce “zero tariffs” on US agricultural imports. India’s Ministry of External Affairs has so far not commented on Trump’s assertions.
These and other questions need clarification from India. The US-India joint statement on an interim framework agreement, released on Feb. 6, does not provide any specific details.
The US made the main concession to reduce the total 50% tariff to 18%, besides promising to remove a few other tariffs once the agreement is ready for signature, including on generic pharmaceuticals, gems and diamonds, aircraft parts, etc. India has not yet indicated the extent of tariff reduction it would offer on US food and agricultural products.
India has also not yet reacted to Trump’s assertion that India had agreed to buy $500 billion worth of US goods over five years; considering that India’s imports from the US amounted to some $40 billion, expecting India to purchase goods worth $500 billion would be unrealistic. India will face an unprecedented balance-of-trade deficit with the US.
Contrasting the EU-India and US-India Agreements
On a prima facie comparison, the EU-India agreement is seen as a “win-win” accord, with both sides gaining improved market access, though agreement on some segments, particularly agricultural products, could lead to protests by affected sectors on both sides. India’s access to the EU market will be enhanced, even though it makes limited concessions compared to those made by the EU. However, on the services sector, the EU fares better than India, although the concession allowed to Indian professionals to move to Europe is seen as a much-aspired breakthrough.
By contrast, the US-India agreement, if implemented in its current form, would be more advantageous for the US than the EU-India agreement is for the EU. If India has indeed agreed to move toward the zero-tariff goalpost, as Trump says, the 18% tariffs would be a gain for the US.
